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Chap 14 - back of the chapter

Chap 14 - back of the chapter - Chapter 14 Partnerships...

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Chapter 14 - Partnerships: Formation and Operation 16.(10 Minutes) (Compute capital balances under both goodwill and bonus methods) a. Goodwill Method Implied value of partnership ($80,000 ÷ 40%) .............. $200,000 Total capital after investment ($70,000 + $40,000 + $80,000) 190,000 Goodwill ............................................................................ $ 10,000 Goodwill to Hamlet (7/10) ............................................... $ 7,000 Goodwill to MacBeth (3/10) ............................................ $ 3,000 Hamlet, capital (original balance plus goodwill) ......... $ 77,000 MacBeth, capital (original balance plus goodwill) ...... $ 43,000 Lear, capital (payment) (40% of total capital) ............... $ 80,000 b. Bonus Method Total capital after investment ($70,000 + 40,000 + $80,000) $190,000 Ownership portion—Lear ............................................... 40% Lear, capital ...................................................................... $ 76,000 Bonus payment made by Lear ($80,000 – $76,000) ...... $ 4,000 Bonus to Hamlet (7/10) .................................................... $ 2,800 Bonus to MacBeth (3/10) ................................................ $ 1,200 Hamlet, capital (original balance plus bonus) ............. $ 72,800 MacBeth, capital (original balance plus bonus) .......... $ 41,200 Lear, capital (40% of total capital) ................................. $ 76,000 14-1
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Chapter 14 - Partnerships: Formation and Operation 17.(15 Minutes) (Prepare journal entries to record admission of new partner under both the goodwill and the bonus methods) Part a. Total capital is $300,000 ($85,000 + $60,000 + $55,000 + $100,000) after the new investment. As Sergio's portion is 25 percent, this partner's capital balance would be $75,000. Because $100,000 was paid, a bonus of $25,000 is given to the three original partners based on their profit and loss ratio: Tiger—$12,500 (50%), Phil—$7,500 (30%), and Ernie—$5,000 (20%). Cash ............................................................................ 100,000 Sergio, Capital ....................................................... 75,000 Tiger, Capital ......................................................... 12,500 Phil, Capital ........................................................... 7,500 Ernie, Capital ......................................................... 5,000 Part b. Total capital is $260,000 ($85,000 + $60,000 + $55,000 + $60,000) after the new investment. As Sergio's portion is 25 percent, this partner's capital balance is $65,000. Because only $60,000 was paid, a bonus of $5,000 is taken from the three original partners based on their profit and loss ratio: Tiger—$2,500 (50%), Phil—$1,500 (30%), and Ernie—$1,000 (20%). Cash ............................................................................ 60,000 Tiger, Capital ............................................................... 2,500 Phil, Capital ................................................................. 1,500 Ernie, Capital .............................................................. 1,000 Sergio, Capital ....................................................... 65,000 Part c. Total capital is $272,000 ($85,000 + $60,000 + $55,000 + $72,000) after the new investment. However, the implied value of the business based on the new investment is $288,000 ($72,000 ÷ 25%). Consequently, goodwill of $16,000 must be recognized with the offsetting allocation to the original partners based on their profit and loss ratio: Tiger—$8,000 (50%), Phil— $4,800 (30%), and Ernie—$3,200 (20%). Goodwill ..................................................................... 16,000 Tiger, Capital ......................................................... 8,000 Phil, Capital ........................................................... 4,800 Ernie, Capital ......................................................... 3,200 Cash ............................................................................. 72,000 Sergio, Capital ....................................................... 72,000 14-2
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Chapter 14 - Partnerships: Formation and Operation 18. (16 Minutes) (Determine capital balances after admission of new partner using both goodwill and bonus methods) Part a. Total capital is $490,000 ($200,000 + $120,000 + $90,000 + $80,000) after the new investment. However, the implied value of the business based on the new investment is only $444,444 ($80,000 ÷ 18%). According to the goodwill method, this situation indicates that the new partner must be bringing some intangible attribute to the partnership other than just cash. This contribution must be computed algebraically and is recorded as goodwill to the new partner. G's Investment = .18 ($200,000 + $120,000 + $90,000 + G's Investment) $80,000 + Goodwill = .18 ($410,000 + $80,000 + Goodwill) $80,000 + Goodwill = $88,200 + .18 Goodwill .82 Goodwill = $8,200 Goodwill = $10,000 The above goodwill balance indicates that Grant's total investment is $90,000 (cash of $80,000 and goodwill of $10,000). A $90,000 contribution raises the total capital to $500,000 so that Grant does, indeed, have an 18 percent interest ($90,000 ÷ $500,000).
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